Arctic megaproject may pose problem for BP & Rosneft green partnership

Russian state-owned crude oil producer Rosneft and its largest foreign investor, BP, have signed a Strategic Collaboration Agreement on sustainability and emissions reductions, despite the challenge immediately posed to it by the Russian oil giant's plans for an oil megaproject in the country's Arctic region. 

A joint statement released by the two companies said they had agreed “to cooperate in identifying and developing new low carbon solutions and programs that will support their shared sustainability goals."

BP and Rosneft will look into a range of green technologies such as carbon capture and storage, cleaner fuel production methods, and forest carbon offset trading, and cooperate on sustainable development and social investment. 

Read more: BP & Orsted partner for green hydrogen project in Germany

Rosneft CEO Igor Sechin - also a former high-ranking member of President Vladimir Putin's administration - said that the agreement demonstrated a unity of direction for the two companies and their future prospective projects. 

"Joint efforts of our two companies, as the world energy industry leaders, will not only strengthen our corporate aims in sustainable development but will also provide a significant contribution to overcoming the challenges the industry and the society face in the climate action and the satisfaction of growing global economy demand for energy resources. This is necessary for balanced social and economic development and life quality improvement," said Sechin.

BP CEO Bernard Looney said: “We’ve been partners with Rosneft for many years now and we learn a great deal from each other. That’s important, and I believe that this agreement can be an important catalyst for progress. We both believe in the power of partnership and look forward to bringing together the best of Rosneft and BP to develop low-carbon solutions and drive down emissions.”

The agreement's goal “to develop low-carbon solutions and drive down emissions” is largely in line with BP's own green plan released last year. However, while laying out its long-term climate goals, Rosneft's strategy also continues to focus on the expansion of hydrocarbon production.

BP's 19.75% stake in Rosneft has come under heavy criticism from environmental groups as well as investors who argue that it stands directly at odds with the company's climate goals.

Part of BP's energy transition plan is to cut oil and gas production by 40% and increase low-carbon and green investments to $5 billion per year by the end of the decade. 

Read more: Pandemic energy slump sees BP profits plummet by 96%

Critics of the Rosneft investment point to the stark contrast this provides to the Russian oil giant's ambitious new project in the Russian Far North. Valued at $85 billion (€71 billion) and the brainchild of Igor Sechin, Arctic Vostok Oil will "nominally unite the largest oil and gas fields located in the north of Krasnoyarsk Territory and create a unified infrastructure for their development and for oil transportation."

Total reserves in the Krasnoyarsk fields covered by Vostok Oil are estimated at 2.6 billion tonnes - 17.8 billion barrels - and the company aims to produce 500,000 barrels of oil per day by 2024, with an aim to doubling that amount by 2027.

Reaching that level of production, according to the project's website "requires the construction of unprecedented amounts of infrastructure" including 6,500 wells and 5,500 km of pipelines. The construction of two airfields, a sea terminal, power lines and highways has already been completed. There are also plans to build a dedicated fleet of ice-class and regular oil tankers to ship the oil to Europe and Asia.

Rosneft estimates that Vostok's peak production will be as much as 100 million tonnes - 684 million barrels - per year. In 2020, Russia's total crude oil production was 513 million tonnes - just over 3.5 billion barrels. 

Published in December last year, Rosneft's climate goals up to 2035 include plans for 20 million tonnes in greenhouse emissions reductions, zero routine flaring of associated petroleum gas, and a 30% cut in upstream emissions to under 20 tonnes of CO2 per one thousand barrels. The company aims to increase the share of gas in its total output to over 25%.

Read more: 'Chernobyl on Ice' makes maiden voyage into the Arctic

BP's Looney has repeatedly defended the company's stake in Rosneft. In a call with analysts last week, he was quoted by Bloomberg as saying that “Rosneft’s greenhouse gas intensity per barrel of oil produced is below 30. In fact, it’s below many of the majors, including BP.”

Looney was also quoted as saying that Rosneft's $3 per barrel rising costs aligned with BP's "resilient hydrocarbons" focus, before going on to say that the $4 billion in dividends BP has received since 2013 have made it "a good financial investment."

Nonetheless, the head of Greenpeace UK's oil team, Mel Evans, said the agreement with Rosneft will not help BP achieve its carbon targets. She told The Times that BP “must ditch Rosneft to embrace a future in renewables”, adding "as long as BP continues to own nearly 20% of Rosneft, its climate plans have a huge gap that has to be closed.”

In a separate interview, she later told Bloomberg that “unless Rosneft finds the courage to actually cut oil production, it’s going to be a millstone for BP’s own plan.

“BP will need to do more with Rosneft to make its climate plan convincing, or ditch them."

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